Advance Tax: Rules, Calculations and Due Dates.

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By Hiral Vakil on March 7, 2019

What is Advance Tax?

Advance Tax is a part payment of your tax liability before the end of the financial year. It is also called pay as you earn scheme where the income tax should be paid in the year in which the income is received.

Who is required to pay Advance tax?

Every person whose tax liability for a financial year exceeds Rs. 10,000 is required to pay the advance tax on an instalment basis. please note that to calculate advance tax, income from all the heads are to be added.

Advance Tax for Salaried individuals

In the case of a salaried person, tax on salary is calculated by the employer. He is responsible to deduct tax (TDS) from your salary income and deposit the same to Government. So salaried person is not required to pay advance tax on salary income.

However, if a salaried person is having income other than salary (for eg. rental income from house property or interest from fixed deposits etc.) and if tax liability on such income exceeds Rs. 10,000 then he has to pay advance tax. It is very common for salaried people to have alternate income sources and as a result, they would become liable to pay advance tax.

Advance Tax for Presumptive Taxation

Up until FY 2015-16, assessees opting for presumptive taxation scheme were not required to pay advance tax. However, with effect from FY 2016-17 (AY 2017-18), assessees opting for presumptive taxation scheme will have to pay advance tax amount in a single installment on or before 15th March. From FY 2016-17 (AY 2017-18), Freelancers and professionals can also opt for the presumptive taxation scheme and avoid the cumbersome tasks of maintaining books of account and audit.

Learn about Presumptive Taxation Scheme

Advance Tax liability for the presumptive taxation scheme is to be calculated and paid only once before the end of the financial year. Here is how advance tax should be calculated for the presumptive taxation scheme:

Assessee typePresumptive incomeAdvance tax liability
Business owners8% of Turnover or Gross receiptsTax at slab rates on presumptive income (flat 30% in case of partnership firm)
Professionals (Freelancers)50% of professional fee receiptsTax at slab rates on presumptive income (flat 30% in case of partnership firm)

Advance Tax for Freelancers/professionals

Freelancers and professionals who do not opt for the presumptive taxation scheme have to calculate and pay advance tax on an instalment basis. They have to estimate their annual income and calculate advance tax on the same because in most of the cases TDS which is deducted by their customers/clients while making payments, is not enough to meet the total tax liability.

How to Calculate Advance Tax?

Here is how to calculate the Advance Tax:

  • Step one: Estimate your income from business or profession. Add all the incomes from ongoing projects or assignments whose fees are already determined. Also, add the incomes which are expected on the basis of ongoing interactions with clients/customers.
  • Step two: Subtract the expenses. You are allowed to deduct the expenses which are directly related to your business or profession. Rent, electricity, legal and professional fees, books, fuel expenses, the salary of employees, depreciation etc. are some of the expenses which are allowed to be deducted from the income.
  • Step three: Add incomes from remaining sources like house property, capital gains, income from other sources etc. Then calculate the tax liability on the total income and deduct the TDS which has already been deducted from your income.
  • Step four: If the resulting tax liability is more than Rs. 10,000 then you are required to pay advance tax on an instalment basis as per the following schedule:

Due dates for payment of Advance Tax:

Due date of installmentAdvance Tax payable by Individual and Corporate Taxpayers
On or before 15th June15% of the advance tax liability
On or before 15th September45% of the advance tax liability
On or before 15th December75% of the advance tax liability
On or before 15th March100% of the advance tax liability

Frequently Asked Questions

1. Do salaried people have to pay advance tax?

​In case of salaried individuals, TDS is deducted from their salary and deposited to the government by their employer. So as far as salary income is concerned, they are not required to pay advance tax. However, for all the incomes other than salary, if the total of such incomes exceed Rs. 50,000 then they will have to assess the tax liability on the same and pay advance tax.

2. How do I determine whether I am liable to pay advance tax or not?

​Before every due date for payment of advance tax, you will have to calculate your expected annual income and determine the tax liability on the same. If your total tax liability exceeds Rs. 10,000 then you are liable to pay advance tax as per the schedule given above.

3. How to pay advance tax?

​There are two ways of tax payment:

  • deposit in the bank with advance tax challan or
  • online payment using Net banking facility

4. What if I don’t pay advance tax in time?

​As mentioned above, if you fail to pay advance tax or make a late payment of advance tax, you will have to pay penal interest.